How to Take Advantage of the Crises in State Governments

How’s your state doing? In California, where I live, there’s mass outcry over possible state budget cuts that could hamstring public schools, colleges and universities if a tax increase slated for the November ballot doesn’t pass. All this, despite the encouraging news about job creation and rising local tax revenues.

California was one of the states hardest hit by the Great Recession and the housing collapse, but we’re not alone in our current struggle. The Wall Street Journal recently reported that, even though the overall economic picture is improving in most states, many state governments are getting ready to slash spending, cut jobs and take additional steps to get their budgets in line.

The Journal reports that for the fiscal year beginning in July, states face a $47 billion gap between their expected revenue and their expenses. A total of 29 states expect deficits for the upcoming fiscal year, and while that is better than the 42 that were facing deficits a year ago, it’s still not good news if your state is one of the 29. New York, Pennsylvania and Florida are among those facing severe crises—and hardest hit of all is Nevada.

Why is this problem persisting despite the improving economy? The Journal says that the soaring costs of pension plans and healthcare for state employees have added to states’ ballooning budgets. It also points out that federal stimulus spending, which helped states get through the initial hump of the recession, has dried up.

What might a state budget crisis mean to you? Consumer spending is likely to slow if residents lose their jobs, worry about losing their jobs, or face rising costs for things that used to be funded by the state (like school programs) . That’s bad news for B-to-C companies.

But if your business sells B-to-B, the news could actually mean opportunity. Here’s what to consider:

Can you sell your products or services to government agencies? Like any customer, governments are more willing to consider new vendors when they’re looking to cut costs. This could open up opportunities your business previously couldn’t take advantage of.

Will governments move to outsource? As agencies slash staff, they may seek to pick up the slack by outsourcing to private companies that can provide the same services more quickly and efficiently. Maybe that’s your business.

Are there local opportunities? States’ problems typically trickle down to local government, so don’t ignore local government agencies as possible clients. And even if your local government doesn’t have the budget to hire you, don’t assume the same is true of all nearby cities. Some local governments have managed funds better than others and, so cast your net wide.

Think education: Local school districts, colleges and universities are going to be hard hit by cash crunches. They may be looking to outsource to private firms to cut costs. Even if they can’t, there could be opportunity for you in providing students with services the state used to fund, such as tutoring, after-school day care or test prep services.

Will the crisis bring lasting change? With many economists predicting the current crisis isn’t short-term, but a way of life, state and local governments may be looking to do things differently for the long term. One city in my area laid off half its public workers last year and announced plans to privatize many municipal services. As The Orange County Register reports, the move has ignited controversy, but has also sparked interest from other local governments.

Of course, if state or local government agencies already make up a big part of your clientele, you’ll need to consider alternative strategies. Could what you do be marketed to the private sector as well? The struggle of state and local governments brings home a lesson every small business owner knows: It’s always smart to have a Plan B (and C, and D).

Rieva Lesonsky is a staff writer for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Follow her on Google+ and visit her blog, SmallBizDaily, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.

3 Reactions

If you can provide a product or service at a lower cost then a cost-cutting environment is the perfect place for you. I just wish local and state governments were better about awarding contracts to local providers to keep the money in the area (and all the benefits that entails).

Local governments can differ greatly, and their approach also…Some will give more opportunities to private sector because of the crisis or just because they think it is useful for local community and others will be against that regardless of current situation.
Personally I think both approaches can be right and wrong. But in any case public and private sector should not be on the opposite sides, especially in these times…

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